Downstream Market Equilibrium and Optimal Policy for the Conventional Food Distribution System in Vietnam: An Industrial Organization Analysis45298

Downstream Market Equilibrium and Optimal Policy
for the Conventional Food Distribution System in
Vietnam: An Industrial Organization Analysis
Ngo Chi Thanh(1)*,
(1) Hong Duc University, Thanh Hoa, Vietnam
* Correspondence:

Abstract: The theory of imperfect competition has largely focused on the growing of market power
and the competition in agricultural market. Based on the context of Vietnam, this paper propose a
industrial organization model for developing countries in the particular case of oligopoly
downstream market power in the conventional food distribution system. The strategy of this paper
is to borrow several arguments from imperfect competition applied in agricultural economics. We
assume that middlemen have market power at downstream of the food system. A small scale farmer
is characterized by production function while the consumer behavior is defined by a discrete choice
model; the inverse demand function is introduced associated to Mussa-Rosen type. Based on such
consideration, we study the quantity flow from small farmers to consumers by mean of Cournot
competition and address the question of optimal the best choice of land reform policy by productivity
shock at downstream market equilibrium.
Keywords: Food system; Industrial organization; Downstream Market Power; Vietnam Economics

1. Introduction
In many developing countries, for example in Vietnam, the traditional food
distribution system becomes very important for delivery food to the cities (Maruyama 2010).
According to General Statistics of Vietnam (GSO, 2018), as of 31st December 2018, there were
8,475 markets nationwide. This conventional system basically moves products from small
farmers to consumers through several intermediaries (e.g. collectors, transporters,
wholesales) called middlemen and then to the retail sector (e.g. street markets, organized
bazaar, frog market). Since most producers of this products are small farmers who only
exploit small lands (for instance, among the total number of households using agricultural
land, 36.1% of them were using under 0.2 ha per household; only 2.3% of them were using
5.0 ha or more per household (GSO, 2018), the middlemen becomes a crucial factor to

delivering products from farmer to cities and urban areas (Moustier 2007; Moustier et al.
2010).
Despite the fact that middlemen are the important factor to distribute products from
farmers to the consumers, they are always thought to gain excessive profit from farmers by
their market power. (Merel et al. 2009; Myers et al. 2010); Based on this observation, the
objective of this paper address the question of how market power of middlemen affecting


to the wealth of farmers and consumers. In more precisely, the paper study the case of
downstream market power which linked to the context of Vietnam in the situation that: at
the local town level, there are a big number of farmers producing foods, and there is also
many middlemen buying these products from farmers. In this situation, middlemen do not
have oligopsony market power, but they have oligopoly power since these products are sold
at their small shops.
Since the imperfect competition are largely considerable in the food market
(McCorriston 2002; Sexton and Lavoie 2001; Myer et al. 2010). The strategy of this paper is
to borrow several arguments based on the theory of imperfect competition. We propose
theoretical model of middlemen behavior in downstream market power. We assume that
middlemen have market power in the downstream of the food system. Small farmers are
characterized by a production function and the consumer’s behavior is defined by a discrete
choice model. The inverse demand function is introduced associated to Mussa – Rossen type
(Mussas and Rossen 1978). Since we introduce Cournot competition, we assume that the
middlemen are able to anticipate the effect of their demand on the prices that should be
given at market. Under such consideration, we construct the model of middlemen in
downstream of the traditional food distribution system for developing countries typically
based on the context of Vietnam.
Under such consideration, we study the downstream market equilibrium to analyze
quantity trade, price and the wealth of both producers and consumers. Based on the optimal
profit problem of middlemen in market competition, we analyzed the behavior of
middlemen at market equilibrium for the case of downstream market power. The result of

trade quantity, the price paid to farmers and paid by consumers and the profit of both
farmers and middlemen at market equilibrium are point out to analyze the situation. These
results give us opportunity to analyze the behavior of middlemen at downstream of the
food system. We show that, since middlemen have downstream market power, there is
always a distortion with respect to perfect competition in the price paid to farmers and sell
to consumers. As consequence, the wealth of farmers becomes lower even consumers
buying foods at higher price.
Since lands are small and fragmentation (Marsh et al. 2006; Pham et al. 2007; Nguyen
2012; GSO, 2018), we construct model of land reform in order to make small land exploited
and labor force used more frequently and effectively for the expectation of reducing the
production cost and improving productivity. We directly introduce the parameter of land
reform in the food production of the farmer. Given from this intermediate result, we
therefore can study the effect of land reform on the prices and quantities, at the same time,
we can recognize how the wealth of farmers and consumers changed in this case of market
competition. We finally address the question of the optimal the best choice of land reform
policy for the case of downstream market power.
For the subject of middlemen behavior and their market power, we can review in
several literatures. For instance, Merel et al. (2009) argued that, high transportation cost can
be important reason leading to middlemen market power. Master (2007, 2008) show that


when the middlemen present in the market, they are welfare reducing, however, they can
beneficial to society. Rubinstein and Wholinsky (1987) studied a model of a market with
sellers, buyers and middlemen, which highlighted the relation between the trading and the
distribution of the gains from trade.
Related to the issue of middlemen market power in
food markets, Thanh (2017; 2018) proposed industrial organization model for developing
countries. These researches focus on the case of upstream and the case of both market side
of the traditional food distribution system. However, the question of middlemen behavior
at downstream market equilibrium has not yet addressed. This remaining in fact is the

interesting case of industrial organization linked to the context of Vietnam. That is the
reason why this paper aims at studying the middlemen behavior in downstream market
equilibrium of food market and proposing policy implication in order to intervene to market
imperfect competition.
This paper contributes to the literatures on the food distribution system by studying
the middlemen behavior and their downstream market power in the food market. This work
opens the prospective for research to study the policy for controlling market imperfect
competition and improving the wealth of both farmers and consumers.

2. Methodology
2.1 Imperfect competition framework
It is largely recognized that imperfect completion is important in agricultural
economics (Sexton and Lavoie 2001; McCorriston 2002; Myer et al. 2010). Therefore, this
paper strategy is to borrow several augments based on the theory of imperfect competition
applied in agricultural economics. In fact, the concept of imperfect competition has largely
focus on the growing of market power and the competition in agricultural market. Since the
objective of this paper is to understand how market behaves and competes, this framework
becomes very important tool for us to not only understand the situation but also analyze the
situation of food distribution system based on imperfect competition approach.
For the case of Vietnam, the role of imperfect competition in the analysis of the food
market competition especially becomes more important since there is market imperfect
competition linked to the context of Vietnam. For instance: (i) The number of small scale
farmers is very large to have only small market power or(ii) Foods is produced in different
locations which are far from cities and urban areas where consume a big quantity of foods
(Wiersinga et al. 2004). As consequence, farmers face with high transaction cost and
therefore have very small market power to bargain the price with the intermediaries who
transport their products to final consumers. From that point of view, this paper applied the
theory of imperfect competition to address the question of downstream market power of
intermediaries in the Vietnam conventional food distribution.
2.2 Theoretical assumption of the model

The assumption and denotation of the industrial organization model is introduced
as in (Thanh 2017, 2018). Let us briefly recall some crucial characteristics of the assumption
and denotation.


In the case of Vietnam, the food system is offended characterized by small farmers,
and two distribution channels which compete: a traditional and a modern one. Most of the
foods are transported to the market with two wheel vehicle at low cost but without really
taking care to the quality of the food. On the other side, in the modern distribution channel,
which often sell products at higher price with more standard of products. This is the reason
why, the author assume the traditional market is market low quality compare to modern
distribution channel. From that point of view, the author set assumption and denotation.
Production function: a farmer is characterized by production function

q  f    
With λ is denoted for the labor used which transform in fruits and vegetables. In this
production function, the author set normalization rule with the wage w=1; in this model, N
small farmers produce the same products (homogenous) for the middlemen which will
finally sell in market low quality in the downstream of the food system.
Farmers produce products Q , the total supply of foods is denoted by Qm . When
selling products for middlemen, the farmer receives the price Pfm . This price will be different
and depend on downstream market power of middlemen. The quantity which middlemen
sell at final market denoted Q . The author assumes that, middlemen will sell all quantity
which he buys from farmers to consumer market. It mean that, the quantity at final market
must be equal to the supply of farmers or Q  Qm . When selling at the final market, the
price which middlemen receive is P . The profit which farmers obtain when selling products
for the middlemen is denoted  mf and the wealth of middlemen remained when sell
products to the market denoted is denoted by  m .
The inverse supply function of farmers:
The author assumes that, farmers play the game: with Pfm is the price paid by the

middle man, he will maximize their profit to optimal level of labor used in the production.
A farmer obviously solves max  Pfm f      . The optimal level of labor is therefore given
2

 Pfm 
by   Pfm   
 and the individual food supply is f  Pfm
 2 

Pfm 
 . Therefore, the
 2 


    

 

total supply of foods S m Pfm

for the middlemen is respectively given:


 Pfm 
Sm  Pfm   N 

 2 

(1)

And the inverse supply function of farmers

 2Q 
Pfm  

 N 

(2)

Middlemen, consumers and demand: the author introduces m middlemen indexed
i. They are symmetric and characterized by a linear cost function with simply is the
transportation cost. The cost function therefore is defined as following:

C m  qm , i   C m qm ,i
The author define the willingness to pay by the low quality index which denoted by
ℓ. Consumers at market low quality actually have two choices: they can buy low quality or
do not buy the products with the weight in the utility   0, K  . Since K is the ranking of
population who may enjoy buying in market low quality, the author set natural assuming
that K  Cm . This assumption implies that the willingness to pay must be large than the
cost of the middlemen. Since the consumers are uniformly distributed on [0, K], the
demands D  p  for low quality food are respectively given by:

0ifP  K
D  p   
P 
 K    ifP  K


Since we have in hand D  p  , we can verify the inverse demand function, the
inverse demand correspondence P : Q  R2 therefore is given by:

P  Q     K  Q  ifQ  0

(3)

3. Results
3.1. Downstream market equilibrium
3.1.1. Definition
In many cases, the market power in the upstream may not attract middlemen. For
example, when many farmers supply their foods at the same time with big quantity, the
price in the upstream is very low, or when index low quality in the downstream is high


enough, middlemen interest on market power in the downstream of the food system. Let us
now study to the case of imperfect competition in the downstream in which middlemen has
oligopoly market power. In this case, he anticipates consumer demand and given the price



 m *

to at market low quality P    q j  qi  . At equilibrium, the definition of this case is given
 ij1i



as:
Definition 1.1: At market equilibrium of imperfect competition in the case of market
power,  *j , q*j , p* , p *fm are defined as following:

 

Farmer maximize profit: max  Pfm f  j   j

 


  m *


Middlemen maximize their profit: i , qi  max qi  P   q j  qi   Pfm  cm  .qi
  j 1



  j i

*



m

N

i 1

m

q*j   j 1 f   j  qi ; i 1 qi*  D  p* 

Given by definition 1.1, the condition for optimization of middlemen is given as:

i ,    .qi     K  Q   Pfm  cm   0
By summing over i, equation becomes:

i , 


.Q     K  Q   Pfm  cm   0
m

We therefore obtain the result:

Q 

m  K  Pfm  cm 

(4)

  m  1

Given by the definition of this case, we have considered that from the farmer optimal
problem, at equilibrium, the supply of the farmer at (1) must be equal to the aggregate
quality in the downstream, in other words, we have



m
i 1

q*j  S  Pfm  , and we now use

quantity to clear the market:

m  K  Pfm  c
  m  1

  NP

fm

2

The price which farmer receiving from middlemen therefore is given as:


Pfm 

2  K  cm 
N
 N  2  
m

(5)

To clear the market at the downstream, we replace Pfm at (5) to Q at (4), the trade
quantity is given by:

Q 

K  cm
2
1

    1
N
m 

Since we have in hand the trade quantity at market equilibrium, we can now
compute the price at the final market low quality by using inverse demand function:

P  Q     K  Q  at (3). The price at demand market P therefore given as:

P 

K  2m  N    mN c
m  N   2  N 

We can now move to verify the profit of middlemen in this case, which is given as
following:

 mDownstream   P  Pfm  c  QDownsrteam
  K  cm  2 
0
 N m 
 2m  N   Nm 


2

(6)

Result 3.1: Given by the computation, we obtain the result of the case of imperfect
competition in the case of downstream:

Pfm

Pfm 

P
2  K

 N 

c

P 



 mf

Q
K  2m  N    mN c
m  N   2  N 

Q 

 Q  N 

0
2
1
  N 
   
N
m 
K  c

3.2 Comparative analysis
The case of downstream market power in the conventional food distribution linked to typically
the case of Vietnam, in which, at the local town level, we can observe that there is the big number of
famers who living around the town producing foods; and there is also many middlemen who buy this


products from farmers. In this situation, the middlemen have no oligopsony market power. However,
in the downstream, middlemen sell all products at their small shops (which we call mom - and - pop
stores, frog market, street markets, in this situation, they have market opligopoly market power. Since
the middlemen have market power in the downstream of the food distribution system, the basic
property can be predicted that the price at final consumer market must be higher than it in perfect
competition, but the trade quantity will be decreased. Therefore, the price given to the farmers will be
lower. Let us now back to the results of the model to study how the situation is implied in the model.
In order to comparative analysis, let us firstly look for the case of bench mark case
of market competition. If we keep the same computation as downstream market power, we
obtain the result of perfect competition as following:
Result 3.2: Given by computation, we obtain the result of the case perfect competition


Case
Perfec

t Competition

ℓ

ℓ

) ℓ −
2(ℓ − ) ℓ(2 +
ℓ +2
ℓ +2
2
ℓ+

ℓ(

)

>

Zer
o

0

(For more detail of Result 3.2, please refers to Thanh, 2018)
We firstly look for the difference of the P between perfect competition and
Downsream
Downsream
downstream case, by replace PDownsream , PPerfect , Pfm
, and Pfm

at Result 3.1 and

Result 3.2 to (6), we observe that:

PDownsream  PPerfect 

N 2  2  K  cm 

 m  N   2  N   N   2

0

(7)

Since K  cm , we can now obtain that:

PDownsream  PPerfect
And:

PfmDownstream 

2  K  cm 
2  K  cm 
 PfmPerfect 
N 
N  2

 N  2 

m 



This result obviously appears as what we predicted in the context of Vietnam when
middlemen have market power in the downstream of the food system, the price given to
consumer is higher while the price given to farmer is decreased compare to perfect
competition.


2

 Q  N  
If we have in mind that,   N   
 , to compare profit of the farmer in this
 N 
m
f

case with the case of perfect competition, we just need to compare the trade quantity
between two cases. Since we consider that  

Q perfect  Q Downstream


 K  cm

   2
N

perfect

This result implies that Q

2
2
1

   1   , we therefore have:
N N
 m


 



K  cm

0


   2    1  1   

 
   N
 m  

 Qdownstream , and we can conclude that farmer’s profit

in imperfect competition on downstream is smaller than farmer’s profit in the case of perfect
competition:

 mfm downstream  N    mfm perfect   N 

(8)

This result implies that, the wealth of middlemen is positive in the case of
downstream market power of imperfect competition. Concerning the comparison of the
profit of the case of downstream with those in perfect competition, we obtain the result at
(6) and (8), which indicates that the profit of farmers in the case of downstream is smaller
than in pure competition, and profit of middlemen is positive compare to zero at benchmark
case. They obtain this profit from their market power by capturing a part of surplus of
consumers and gaining profit from farmers by lower price.
Proposition 3.1: In the case of downstream when middlemen have oligopoly market power:
Even it is competitive at final consumer market, the price given to consumers is
higher (i.e. PDownstream  PPerfect ).
Less quantity are traded (i.e. QDownstream  QPerfect ), and as consequence, the price paid
Downstream
 PfmPerfect ).
to farmers is lower (i.e. Pfm

Profit

of

farmers

is

decreased

since

middlemen

pay

lower

(i.e.

 Downstream
(N)   mPerfect (N) ).
f
Profit of middlemen is positive by capturing apart surplus from consumers and
paying lower to the farmers (i.e.  mDownstream  0 ).


3.3 Optimal Land policy for the intervention of downstream market power
3.3.1 Theoretical Model of Land reform
We construct model of land reform in order to make small land exploited and labor
force used more frequently and effectively for the expectation of reducing the production
cost and improving productivity. Based on such consideration, we directly introduce the
parameter of land reform in the food production of the farmer as following:

q  f     
In which, λ is labor use to produce vegetables. The optimal labor used of the famers
in this context is given by:

  p fm
 

 2







2

The total supplies of foods Qm   for the middlemen are respectively given by:

Qm    N .

 p fm
2

And the inverse supply function is defined by:

p fm   

2Qm
N

Since nothing is changed in the demand at the downstream of the food system, we
observe that what is only changed in the equation of maximization problem of middlemen
is that  multiply by N. By using the same computation as in result (3.1), we obtain the
prices and quantities at market equilibrium in the case of downstream:
Result 3.3: The final solution of market equilibrium in the case of downstream is given by:

p fm  

p  

2  K  cm 

   NK  mN cm   2mK



1

  N  m  1  2 





 N  m  1  2m

2

3.3.2 The effect of land reform

Q  
K  cm
2
1

   1 

 m  N


To observe the effect of land reform on the prices and the quantities, we compute the
elasticity which reflects the reaction of the prices to the changes of α. This elasticity Ep fm in

fact is computed by Ep fm 

dp fm  
d

.


p fm  

and Ep 

dp  
d  

.


p  

Proposition 3.2: Given by our computation, the effect of land reform on prices and quantities in the
case of downstream is given as follow:
Elasticity of

p fm

1 


  N  1  m  
0

  N  1  1   2 




 m



Elasticity of



Quantity

p

2 m 2 N  K  cm 

 N  m  1  2m   N   K  mc   2mK 
m

0

dQ
d  

0

Proof: See appendix

The result at proposition 3.2 show that the consumers buy food at the cheaper price

 Ep  0 

on final demand market while farmers receive lower price paid from

middlemen ( Ep fm  0) on the food market supply of the farmers. This result implies that
land reform benefits to the consumer but have negative effect on farmers. However, this
situation can be improved by the fact that farmers can sell more products by improving
productivity

 dQ 

 0  and lower production cost by using land more flexible. Our

 d


results make sense with the empirical studies of Nguyen, 2012), which state that land reform
in Vietnam have positive effects on crop productivity of households and increase food
production. These results obviously appear in our model since land reform improves

productivity and benefit to both farmers and consumers by selling more foods and buying
cheaper price.
Proposition 3.3: The reaction of the price in food supply market of the farmers is given by
while the reaction of price in demand side of consumers is given by
EPDownstream
 EPPerfect
fm
fm

EPDownstream
 EPerfect .

Poof: See Appendix.
This result gives us opportunity to understand the distortion introduced by
imperfect competition. We can observe that, in the case of downstream market power,


because of perfect competition and productivity shock in the upstream, the cost of
middlemen is decreased. They therefore can decrease the price more than the cost to attract
consumers; in some sense they reduce their market power. That is the reason why
. But they don’t increase the quantity traded as perfect competition or in
EPDownstream
 EPPerfect
fm
fm
other words, they want to buy less from farmers compare to perfect competition. That is the
reason why, the price given to farmers is more reactive compare to perfect competition
.
EPDownstream
 EPPerfect

fm
fm
3.3.3 Optimal land reform policy
In order to organize this discussion, we adopt second best approach. The reader
however notices that in the case of perfect competition, we characterize the first best. From
that point of view, we have difference cases to compute the surplus of consumers net of
production cost. We also ask some specific costs link to the implication of land reform, they
are given by CL 

1
2
V   1 .
2

Definition 3.1: The second best productivity shock  is given by:
Q*

1
2
q 2 Q2
max      K  q dQ*  cm Q*   *  V   1
*



With
2
0
 N

The general condition for the maximization problem of  is therefore given by:


2Q*  dQ
Q2
*

K

Q

c


 V   1  0





m
 N  d  2 N


(9)

Proposition 3.4: Given by our computation, the first and the second order conditions for
optimization problem of
FOC



Q

Downsrteam


2N
SOC

in the case of downstream is given as follow:

  

2



2 N 
 1  V   1  0

  N  1  m   2m  


2

2  QDownstream    1  m 2 A  2m  A  1 

 V  0


  N 1  m   2m 2 
2


Proof: See appendix

Existence:
It remains to verify that there exists a unique solution for  FOC in the
downstream case of market competition. By the second order condition SOC, we have in


hand that the function is decreasing. It remain that to verify some boundary condition which
ensure that solution between 1,   .
Proposition 3.5: We show that, there exists a optimal of   1 , which is the best choice of
policy in the case of downstream market competition.
Proof: See appendix
Our result show that, there exists a optimal of   1 which is the best choice of land
reform policy in the case of downstream market competition.

4. Conclusions
The paper highlights the competitive relationship between middlemen with the
farmers in the downstream of the conventional food distribution system. Based on the
context of Vietnam, we propose the industrial organization for developing countries. Our
model shows that, at equilibrium, the downstream market power of middlemen has an
important effect on both farmers and consumers. The result indicates that, since middlemen
have market power, there is always a distortion with respect to perfect competition in the
price paid to farmers and sold to consumers. In fact, the price paid to farmers is lower, while
the price sells at the final consumer market keeping higher comparing to perfect
competition. This is the reason why we can go to conclude that with their market power,
middlemen capture some profit from farmers and also take a part the wealth of consumers

in the traditional food distribution system.
In order to intervene to market imperfect competition, we propose model of land
reform policy in downstream market by introducing productivity shock. At equilibrium, we
study the effect of land reform on the prices and quantities, at the same time, we recognize
how the wealth of farmers and consumers changed in the case of downstream market
competition. We finally show that, there existence of the optimal the best choice of land
reform policy for the case of downstream market power.

Appendix
1. Proof of proposition 3.2:
 Elasticity of Pfm
Downtream ( )

Since Pfm



2  K  cm 

, we obtain:



1

  N  m  1  2 





1
1


2  K  Cm  .N 1  
N  1  
dPfm
 m   P .
 m

fm
2
2
d  

1


1





N
1


2



N
1


2








 m
 m







1


N  1  
 m
 EPDownstream
  Pfm . 

2
fm
   N 1  1   2 


 m


 Elasticity of P
Since P   



1 


 N  1   

.    
 m 0
 P
1



 N  1    2 
 fm


 m





   2 NK  mN cm   2mK
 N  m  1  2m

,

N   K  mCm   N  m  1  2m   N  m  1
dP

2
d  
 N  m  1  2m 

  P .
E

N  m  1



N  K  mCm 

 N  m  1  2m   N  m  1  2m 

Downstream
Pfm

2 m2 N  K  Cm 
dP


.

d   P    N  m  1  2m   N   K  mCm   2mK 

2. Proof Proposition 3.3:


EPDownstream
 EPPerfect
fm
fm
1 


  N 1  m  
 N

EPDownstream
 EPPerfect
 
fm
fm
   N  1  1   2   N  2





 m


2 N

 0  EPDownstream
 EPPerfect
fm
fm
 N  2  2m   N   Nm 



EPDownstream
 EPPerfect





2 N 2 2 
Downstream
EPPerfect

E



P



  2 K  N  C  N   2    0
m


 K  Cm   4 Km  N  K  mCm  mK  
with 
0
 2m  N   Nm   2 Km  NK   Nm Cm 
 EPPerfect
 EPDownstream


3. Proposition 3.4
 FOC: if we consider that in case of imperfect competition on demand side, the
condition for maximization problem of middlemen given as:



Q     K  Q   Pfm  Cm   0
m

 i ,   K  Q   Cm  Pfm  Q
m
2Qm
And we also consider: Pfm 
N
i , 

Les us substitute   K  Q   Cm  Pfm 

2Qm

Q and Pfm 
to (9); We
m
N

obtain the result:


2Q*  dQ
Q2
*
 2   V   1  0
   K  Q   cm 

 N  d  N

Q2

 dQ
  .Q    2  V   1  0
m
 d  N
dQ
2mQ

to (10), we have:

d    N 1  m   2m 

Therefore, if we substitute:

FOC 


(10)


Q2 
2mQ

1

  V   1  0
 2 N    N 1  m   2m  

SOC:
FOC can be wrriten as:


Q2 
2mQ
 1  V   1  0

2
 N    N 1  m   2m  





(11)

A

Let us set



2mQ
A
 1 >1, we now can compute the SOC in the case of
   N 1  m   2m  



downstream, which are equal to:
'

'

2
 Q2
  Q2 
'  Q 
 2 A  V   1    2  A  A  2   V
 N
  N 
 N 

'

 Q2 
Let us verify    , we obtain that
N 

2


'

2Q

2mQ
2
dQ 2
 N  2 NQ2 2Q   N 1  m   2m   2 NQ
d

4N2
4N2

Q 

 
N 
2Q2 N 1  m 
 3
 N  N 1  m   2m 

(12)


'



2mQ
4Nm
Besides: A  
 1 
2
   N 1  m   2m  

  N 1  m   2m 
'

'

2Q N 1  m 
 Q2 
4Nm
'
and A 
  3
2
 N  N 1  m   2m 
N 
 N 1  m   2m 

Let us substitute 

to (12), we obtain the result:

SOC  

2Q N 1  m 

 3 N  N 1  m   2m 

A

4Nm

 N 1  m   2m 

2

 Q2 

 V
N 

2
2
2Q2   1  m  A  2m A  2m  A  1 
 SOC   2
V  0
2


 


N
1

m

2
m







(13)

Given by the result at (12) and (13), we can conclude that, there exists an optimal of
 >1 in case of the downstream imperfect competition.

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Compensation Policies and Employee Perceptions of
Pay Equity in a Transitional Economy: The Case of

Vietnamese State-Owned Enterprises